TORONTO, July 26, 2012 /CNW/ - Major reforms should be pursued to
enhance the accountability and effectiveness of Credit Rating Agencies
(CRAs) according to a new report from the C.D. Howe Institute. In "A
Question of Credibility: Enhancing the Accountability and Effectiveness
of Credit Rating Agencies," Stéphane Rousseau, Chair in Business Law,
Université de Montréal, notes in the wake of the financial crisis,
Credit Rating Agencies (CRAs) have been criticized for playing a
significant role in the market turmoil. He critiques the regulatory
responses so far by Western governments, and proposes three more
effective reforms.
"Canada's response so far, like those in the US and EU, doesn't go far
enough and arguably goes in the wrong direction by adding another layer
of cumbersome regulation," he says.

Professor Rousseau notes numerous reports have identified failures on
the part of CRAs that affected the quality and integrity of the rating
process. In light of the critiques, a strong consensus has emerged
among policymakers that regulatory intervention is needed. In Canada,
the European Union and the United States, policymakers have opted for
registration systems. But registration regimes can stifle competition,
induce undue reliance on ratings and burden regulators, he says.

To address these shortcomings, three major areas of reform should be
pursued. The first is the elimination of regulatory reliance on
ratings. The second is the development of a due diligence obligation
for institutional investors with respect to the creditworthiness of
issuers. The third is the disclosure of information on underlying
assets by issuers of structured finance products.